11 December 2007
There is a need for a major review of Pay-Related Social Insurance (PRSI) over the next six months in advance of next year’s Budget.
CIPD-Ireland director, Michael McDonnell said that he welcomed the decision in the recent Budget not to remove the PRSI earnings ceiling in advance of a major review of the implications.
'The reality is that both the PSRI and Health Levy need to be re-assessed in line with the commitment given by the Minister for Finance, Brian Cowen in his Budget speech last year.' The current employer PRSI rate is 10.75%.
Mr McDonnell added that a simple removal of the ceiling would be an effective increase in employment taxes and lead to higher-earners paying for social services which would never be of benefit to them.
In his Budget last week, Mr Cowen increased the weekly exemption threshold at which employees do not pay PRSI from €339 to €352. So anyone earning €352 and under a week, or less than €18,300 a year, will not have to pay PRSI.
For those who earn more than this the rate remains at 4%, up to an income ceiling of €50,700. Prior to the budget the ceiling had been set at €48,800. The Minister had talked in last year's Budget about getting rid of the PRSI ceiling altogether and lowering the rate to 2%.
Abolishing the ceiling would result in an extra personal payment of €2,000 for a person earning €100,000 a year and the employee contribution would have increased by at least €5,375. This would mean higher-income earners would have paid more PRSI, but it was argued that this would be fairer if the overall employee rate was reduced to 2%.
There were just slight changes in the health levy with the annual threshold increased from €24,960 to €26,000 or from €480 a week to €500. Those earning less than €500 are exempt from the health levy payment in 2008.
'We need an overall review of both the PRSI and Health Levy system for both employees, employers and the self-employed, preferably tied in with proposals on pension provision and funding,' Mr McDonnell explained.